Regional Integration And Corporate Financial Behavior Convergence

With the booming economy,China still facing the problem of coordinated and balanced development between different regions.Market segmentation exists in markets for goods and services,the market for factors of production and property rights exchange market among different administrative regions,results in competition and contradiction in industrial distribution and urban planning,and this phenomenon hinders the formation of a unified domestic market.To solve the regional problem and carry out major strategic blueprint,the fifth Plenary Session of the 19 th Central Committee of the COMMUNIST Party of China(CPC)clearly proposed that "We will continue to implement the major regional strategies,the coordinated regional development strategy,and the strategy of functional zones,and also improve institutions and mechanisms for coordinated regional development".In order to alleviate the market segmentation caused by administrative barriers,the government has led a series of adjustments administrative division in recent years,among which the City-County Merger is one of the influential and strong implementation of the policies.The effect of City-County Merger has always been the focus of scholars as one of the representative adjustments of administrative division.However,previous studies only discussed the policy effect from the macro level such as regional economy and migration movement,fews of studies mention the economic consequences from microscopic view.Corporates are the market subject and the micro-foundation of regional market segmentation.Therefore,the effect of regional integration must manifest in corporates’ Convergence Behaviors.Meanwhile,it is also conducive to reflecting the impact of administrative boundaries on corporate behavior under the back ground of regional protectionism and market segmentation dynamically.Based on the analysis above,this paper uses the quasi-natural experiment of the reform practice of removing counties into districts to examine the influence of the linkage between corporates in the original municipal districts and original county due to the weakening of administrative division.Specifically,this paper discusses the current situation and causes of Market Segmentation in China and the institutional background of removing counties into districts.Started with the behavioral convergence between corporates,this paper investigated whether the weakening of administrative division from the removal counties into districts will lead to the enhancement of the linkage behavior between corporates,for example,the convergence in financing and investment decisions.Moreover,it is also of vital importance to analyze the impact of this policy on the linkage relationship between corporates in the original municipal area the original county from the perspective of stock price linkage.First of all,this paper studies the convergence of financing behaviors between corporates in the original municipal district and the original county after the policy of removal counties into districts.It is found that the policy has a promoting effect on the financing convergence between the listed corporates in the pilot reform zones.In the robustness test,this result passes parallel trend test and the test of substitution key variable measurement.Heterogeneity analysis shows that the above results are more significant in the regions with higher degree of market segmentation,and in capitalintensive corporates.Furthermore,this paper separates the learning effect of the removed county corporates on the municipal corporates from the overall financing convergence results,and the removed county corporates are more likely to imitate the larger leading companies in the municipal districts.Secondly,this paper studies whether the investment behaviors between the corporates in the original municipal district and the original county are similar after the policy.It is also showed that the policy has a promoting effect on the investment convergence between listed corporates in those two kinds of areas.Similarly,this result has also passed a series of robustness tests mentioned above.Heterogeneity analysis indicate that in regions with higher market segmentation,and in capitalintensive corporates,the above results are more significant.Further,the learning effect and the same imitation behavior have also been separated and found as well.Finally,this paper further examines the impact of the removal counties into districts on the corporates stock price co-movement.The results imply that after the county are established as a district,the stock price co-movement between the original county corporates and the original municipal district corporates increased significantly,and the above results are more significant in areas with high market segmentation and a low degree of marketization.In addition,after the removal,the earnings linkage between the two areas’ corporates also increased significantly,indicating that the increase in the stock price co-movement is caused by the real economic activities among corporates.Above all,the adjustment of administrative divisions led by the government can effectively promote the linkage of regional corporates and regional integration.Through the policy of removal counties into districts,this paper reveals the regional integration effect of the administrative division adjustments,the financing and investment convergent effect of corporates and the influence on the stock price co-movement.The research contributes to:(1)We extend the findings of economic consequence of administrative division adjustment to the micro level.Previous studies have been carried out at the macro level,such as examining the impact of administrative division adjustment on local public finance,population and urbanization,and regional economic growth.This paper focus on financing convergence of city and county microcorporates to reflect the effect of regional integration,so that we can provide micro evidence for macro-level policy,and it is also a powerful supplement to the literature on the effect of administrative division adjustment policies.(2)We contribute to the relevant literature on the influence factors of the convergence of corporate financing.Previous research on financing convergence limited to two types of groups(industrial and regional groups),and the role of the government has been ignored,especially the government-led administrative divisions adjustments.Under the institutional background of China,that is,regional market segmentation,this paper dynamically examines the financing convergence phenomenon of cities and counties before and after the City-County Merger.The results reveal the impact of government-led adjustment of administrative divisions on corporate financing convergence and it’s a supplement to the affecting factors of convergence of corporate financing.(3)We also contribute to the relevant literature on the influence factors of the convergence of corporate investment.Previous researches mainly include the motives,industry herding effect and tide phenomenon of investment convergence among industry.As a result,less attention is paid to the role of government-led administrative divisions adjustments.Under the situation of Chinese market segmentation,the phenomenon of investment convergence of cities and counties before and after the City-County Merger is dynamically investigated,which reveals the impact of government-led administrative division adjustment.New affecting factors of investment convergence has been added.(4)We find new influencing factors of the stock price co-movement.Previous related literature have examined the linkage among the same geographic region or administrative division.However,This paper use corporates located in different administrative divisions.Although most of the previous literature are based on geographical market segmentation,they rarely consider the role of the government in the stock price co-movement.In emerging economies as China,government behavior plays an important role on the micro market.In the context of the Chinese regional market segmentation,this paper dynamically examines the changes in the co-movement of stock prices of cities and counties before and after the policy.The roles of government are incorporated into the analytical framework of the regional stock price co-movement.In addition,this paper indicates that the impact of administrative division adjustment on stock price co-movement stems from the increase in the co-movement of real corporate activities,which also empirical evidence for the stock price co-movement phenomenon driven by fundamentals.In the end,this paper has certain practical meaning:(1)This paper reveals the importance of improving the government governance.Chinese government-led administrative division adjustment policy has effectively improved the governance system,reshaped the governance functions,broke the administrative barriers between regions,eased the market segmentation between regions,and powerfully promoted the integrated development of regional economies.It can be seen that the governance system has an important influence on whether the market can fully play the decisive role in resource allocation.It is crucial to correctly grasping the balance and positioning of the government in promoting economic development.(2)Market segmentation is a widespread problem at all levels.Most of the existing literature focus on provincial-level,but in reality,there is also a regional market segmentation problem between prefecture-level cities and between cities and counties.The administrative division adjustment is more concerned with the adjustment of the prefecture-level city,which has certain limitations.Therefore,it is difficult to respond to the macrolevel and higher-level market segmentation issues.So it’s suggested that the regional integration policy is worthy of further exploration.The local governments should learn from the existing experience,so they should not only simply adjust administrative divisions,but also actively promote the implementation of supporting measures,so that the integration between regions would not only the ownership integration.From the integration measure,the market,economy and the system should be integrated,and bring booming development of marketization and the economy between regions.